A group of Russian lawyers claims that it has found a path to financial remuneration for victims who lost bitcoin in the historic 2014 Mt. Gox hack. But one blockchain lawyer, as well as other creditors, are cautioning that the deal being offered is more sour than sweet.

The news comes after a dizzying saga for victims of the hack, whose only hope of resolution seemed to be through a civil rehabilitation case via the Japanese court system. But now Russian law firm Zheleznikov and Partners alleges that there’s another way.

A member of the Moscow Bar Association, the firm published its “Mt Gox Russian Recoveries Proposal” on September 12, 2019. The document lays out a step-by-step plan to recover between 170,000 to 200,000 bitcoin stolen in the Mt. Gox heist (this represents roughly a fifth of all funds filched from what was the most popular bitcoin exchange at the time). The firm says it would give creditors remuneration in fiat based on the exchange rate at the time of recovery and equal to the number of bitcoin lost in the hack.

The cost? 50 percent of the recovered funds and $350 an hour for its services (only to be paid if the funds are recovered). This, among other concerns, has critics screaming, “Run for the hills.”

New Lead?

Zheleznikov and Partners claims to have identified Russian individuals involved in the theft, and it wants to launch a criminal case to shake them down in court; it has opted for this route instead of a civil class-action suit due to complications with cryptocurrency’s classification in Russian law and the fact that the funds have not yet been found. To launch a criminal case, though, it needs creditors to come forward to show police that there’s enough interest to launch an investigation.

The firm is using its brand recognition among police and other officials in Russia as a primary selling point as to why “only [it] can do this.”

“Our firm has developed these relationship [sic] over several years through our track record of professional conduct and mutual respect for our colleagues working in law enforcement,” the brief reads. “Russian police and other law enforcement agencies in Russia recognise and distinguish our firm both acting as advocate for the defendants (in some cases) and as advocate acting for victims of crimes, including theft and fraud, in other cases.”

In addition, it has claimed in a creditors forum to have secured some $1 million in an unrelated case against the now-defunct Wex exchange, bolstering its professional credibility. This prior experience, it suggests, taken in tandem with its entrenched status among Russian officials, poises it better than others to prosecute those it has identified as being involved in the theft.

Not So Fast, Says Another Mt. Gox Lawyer

Only Zheleznikov and Partners refuses to give specifics about the case or disclose these ostensibly malicious actors. Kelman believes this raises a serious ethical issue.

“The Russian Recovery lawyers have stated they will not disclose specific facts about the case because once they share them we are free to take them to a different law firm,” his post reads. “News flash: that’s how the legal services market works. If a lawyer has a good case, they show it to their client and offer a fair price. If the client trusts the lawyer, the client then goes with the obvious solution staring them in the face. These lawyers have treated their engagement like it’s a mystery box, asking us to first gamble with a majority of our right to recovery before we can take their legal strategy out of its package. This is an unethical way to solicit clients, no legal engagement should this closely resemble a carnival game.”

He’s also unsure that the legal team’s alleged leads are anything new. Alexander Zheleznikov, the firm’s primary partner, told CoinDesk that his firm has reason to believe some of the stolen bitcoin were entangled in BTC-e, another now-dead exchange, which gave birth to Wex.

This has been well documented and investigated, Kelman wrote, saying that “[i]t’s no secret the MtGox bitcoins were laundered at BTC-e.”

Alexander Vinnik, believed to be BTC-e’s chief operator, was arrested in Greece in July 2017 at the U.S. Department of Justice’s request; he is awaiting extradition orders to either Russia, France or the U.S.

“The Russian Recovery lawyers have stated they will not disclose specific facts about the case because once they share them we are free to take them to a different law firm. News flash: that’s how the legal services market works.”

“The Russian Recovery lawyers have been following BTC-e closely and I am sure they are aware that the US Department of Justice (DOJ) recently filed a civil action against BTC-e and Vinnik for money damages. This civil action is separate from any criminal action,” Kelman wrote (emphasis his own). “This begs the question of whether the Russian Recovery lawyers’ secret information is just advance knowledge of what DOJ has planned … if anyone has knowledge about the whereabouts of BTC-e’s bitcoins I’d wager it would be the legal representative of the law enforcement agency that has spent the past few years investigating where those bitcoins went … [so] the Russian Recovery lawyers wouldn’t deserve a lion’s share of our cut for acting as vultures picking at BTC-e’s carcass.”

“Blatant” Opportunism

Speaking of that lion’s share, Kelman thinks the law firm’s fees are ludicrous. But this figure, which the firm calls “very generous,” is necessary (according to them) given the unconventional nature of the case and “reflects the market price for litigation finance given the risks and costs involved” — not to mention that it could take years of litigation.

Kelman, though, believes the fee has everything to do with the firm’s decision to file a criminal case instead of a civil class action.

“Why hasn’t this been done?” he asks. “Simply put, filing a class action would throw a wrench in plans to claim 50% of the winnings because contingency fees are not legal in Russia. A Russian court would not approve a contingency fee and these lawyers would instead only be making an honest $350 an hour.”

Kelman also claims that the firm originally asked for a staggering 80 percent of recovered funds, calling this “a blatant attempt to capitalize on the hopelessness that many MtGox creditors feel after five years of legal proceedings.”

He also takes issue with its use of Andy Pag, a Mt. Gox creditor himself and former BBC journalist who founded Mt. Gox Legal, a group to represent the interest of the exchange’s creditors.

Zheleznikov and Partners hired Pag to write the recovery proposal, and he also sold his creditor claim to the law firm. Not only does this make him a “counter-party” in this whole ordeal, it also presents a clear conflict of interest, Kelman argues.

“Andy is sitting on two chairs; one as a trusted advisor on the governance board of MGL, another as a paid facilitator of the other party … his conflicted position would, at the very least, cause him to be less motivated to question the veracity of the Russian Recovery lawyers and adequately vet the abnormalities in their offer,” per Kelman. “He is in fact advocating in favor of the offer. He has in fact placed himself in a position where his incentives are directly at odds with our own best interests. This makes it hard for me to afford much weight to his opinion here.”

“Abnormal” Legal Behavior

All in all, the Russian firm’s case is unscrupulous at best, Kelman thinks. And he’s not alone: a handful of Bitcointalk forums have raised red flags as well, likening the proposal to a “con job.” There’s also the issue of creditors potentially paying twice for legal fees if both the Russian team and the Japanese trustee are successful in their recovery efforts.

With a deadline nearing for creditors to back the firm’s legal action, Kelman — while admitting that his diagnosis is subject to speculation over who will recover which funds — is cautioning creditors to stay away from what he brands as “abnormal” legal behavior.

“It’s possible the Russian Recovery lawyers are hit with a DOJ subpoena to disclose the information they’re sitting on,” he wrote. “I’m admittedly speculating, but we have to pick a horse in this race and my bet is that there will eventually be more than one horse to bet on. I am not prematurely placing my bet on lawyers who have been acting in a manner that is, to put it politely, abnormal.”

The IRS is using unreliable tax forms received from cryptocurrency exchanges to come after traders.

Over the past month, we have seen the IRS, the tax collecting agency of the United States, send out more than 10,000 warning and action letters to suspected cryptocurrency holders and traders who may have misreported digital assets on their tax returns. Letters like the 6174-A, 6173 and CP2000 have appeared in the mailboxes of cryptocurrency traders throughout the country, and the crypto tax software company that I run has seen an influx of frantic customers coming to us for tax help out of fear of penalties.

The problem here is that the IRS doesn’t have all of the necessary information. In fact, not only does it not have all the information, but the information that it does have on the cryptocurrency holders that it is sending letters to is extremely misleading. This information, which was supplied to the IRS by cryptocurrency exchanges like Coinbase, is causing the agency to blindly and oftentimes inaccurately come after cryptocurrency traders.

How is cryptocurrency taxed in the U.S.?

In many countries around the world — the U.S. included — cryptocurrencies like Bitcoin are treated as property from a tax perspective, rather than as a currency. Just like other forms of property — stocks, bonds, real-estate — you incur capital gains and capital losses that need to be reported on your tax return whenever you sell, trade or otherwise dispose of your cryptocurrency.

Pretty straightforward: If you make a bunch of money investing in Bitcoin (BTC), you have a capital gain and a tax liability that needs to be reported. If you lose a bunch of money, you have a capital loss, which will actually save you money on your tax bill — though it still needs to be reported.

It doesn’t come as a huge surprise that many enthusiasts have not been paying taxes on their cryptocurrency activity. Because of this, it actually makes a lot of sense why the IRS has started carrying out these enforcement campaigns. However, the agency is using information that is extremely misleading, and it is leading to problems. This misleading information starts with Form 1099-K.

Breaking down Form 1099-K

Cryptocurrency exchanges like Coinbase, Gemini and others issue 1099-K’s to users who meet certain thresholds of transaction volume on their platforms. The IRS states on its website that the 1099-K is an information return used to report third-party network transactions to improve voluntary tax compliance.

In plain English, the 1099-K is used to report your gross transactions on a third-party network — in this case, a cryptocurrency exchange. This means that all of your transactions, buys, sells, transfers, etc. are summed up and reported on a 1099-K. If you meet certain thresholds — gross payments that exceed $20,000 and more than 200 such transactions — you and the IRS are both sent a copy of this 1099-K from the cryptocurrency exchange. The IRS is using these documents to monitor who is and isn’t paying taxes correctly.

These “gross transaction” reports can quickly get extremely large for high volume cryptocurrency traders. Remember, every transaction you made is being summed together on this form. I purchased $1,000 worth of Bitcoin, and then traded that Bitcoin in and out for Ether (ETH) five times, and my gross proceeds are now over $6,000 — even though I only ever “put in” $1,000 cash! This is because all “buy” transactions are added together to report gross proceeds, and in this case, I technically had six different buy transactions and six different “sell” transactions — a Bitcoin trade into ETH is considered both a buy of ETH and a sell of BTC.

You can see how this number can become extremely large for a high volume trader. At CryptoTrader.Tax, we’ve seen 1099-K’s from customers in the millions of dollars range when the trader only ever had a few thousand dollars worth of crypto.

Why this is so problematic

1099-K’s are reporting gross transaction amounts and are being sent to the government. Yet, the numbers reported are completely irrelevant when it comes to tax reporting, as you are only actually taxed on your capital gains and losses.

Again as an example, say you purchased $10,000 worth of Bitcoin in April and then sold it two months later for $9,500. You have a $500 capital loss that would be deducted from your taxable income. However, reported on 1099-K, nothing is said of your net loss; the form only tells the government that you have $19,500 of gross cryptocurrency transactions.

Ultimately, 1099-K is not a form that should be used for tax reporting purposes, yet the IRS is relying on it for enforcement. Many people often mistake the 1099-K that they receive from cryptocurrency exchanges with the typical 1099-B that they might receive from their stock broker or other investment platform outside of crypto. The 1099-B is the correct form that reports all necessary information required to calculate and accurately report capital gains and losses — including cost basis and fair market value of your investments. It’s very easy to determine your total capital gain and loss with this form, contrary to 1099-K.

The fact that the IRS is relying on 1099-K to issue action letters is problematic. Unfortunately, cryptocurrency exchanges do not have the ability to give you an accurate Form 1099-B.

Because cryptocurrency users are constantly transferring crypto into and out of their exchanges, the exchange itself has no way of knowing how, when, where or at what cost (cost basis) you originally acquired your cryptocurrencies. It only sees that they appear in your wallet on their platform.

The second you transfer crypto into or out of an exchange, that exchange loses the ability to give you an accurate report detailing the cost basis and fair market value of your cryptocurrencies, both of which are mandatory components for tax reporting. In other words, cryptocurrency exchanges do not have the ability to provide you with the necessary information to calculate your capital gains and losses. This also means that they also don’t have the ability to provide you with a 1099-B.

Coinbase itself explains to its users in its FAQs that their generated tax reports won’t be accurate if any of the following scenarios took place:

You bought or sold digital assets on another exchange.

You sent or received digital assets from a non-Coinbase wallet.

You sent or received digital assets from another exchange, including Coinbase Pro.

You stored digital assets on an external storage device.

You participated in an initial coin offering.

You previously used a method other than ”first in, first out“ to determine your gains/losses on digital asset investments

These scenarios affect millions of users.

In conclusion

The information that the IRS is receiving from cryptocurrency exchanges does not reflect your capital gains and losses whatsoever. This is problematic because these capital gains and losses are what you actually pay taxes on, not gross transaction amounts.

So, if you received a warning letter from the IRS, don’t panic. As long as you have been properly filing your cryptocurrency gains and losses on your taxes, you should be fine. The absurdly high numbers that you are seeing on these letters are often times irrelevant. Nonetheless, it is a good idea to consult a tax professional who is familiar with cryptocurrency for further help and clarification — especially if it’s an action letter.

The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

David Kemmerer is the co-founder and CEO of CryptoTrader.Tax, a tax reporting platform for cryptocurrency investors.

Ricardo Pérez-Marco is a Spanish university professor who teaches mathematics at the Paris Diderot University in France. Since discovering Bitcoin sometime in 2011 and realizing that the cryptography and math were unassailable, he has dedicated a significant amount of time to researching Satoshi Nakamoto’s creation. At one point in 2013, he attempted to create a Bitcoin-centric class in his department at the university but did not manage to convince the academic consortium about the legitimacy of the topic.

Pérez-Marco’s most significant contribution to Bitcoin is unquestionably his work on the ant routing algorithm for the Lightning Network. This research project, which he conducts alongside Professor Cyril Grunspan from Pôle Universitaire Léonard de Vinci in Paris, culminated in the release of an academic paper titled “Ant Routing Algorithm for the Lightning Network.”

How Ant Routing Draws From Nature

During the first part of this exclusive Bitcoin Magazine interview, Pérez Marco explains why the Lightning Network needs improvements in its routing method and how the proposal he co-authored works. The mathematician considers that Bitcoin’s second layer should be as decentralized and efficient as possible ⁠— and the essential condition to achieve this goal is to enable all nodes to perform the same tasks while having access to the same information.

At this point in its development, Lightning tends to converge toward faster custodial solutions. Furthermore, the upcoming Watchtower nodes will further centralize the network. This is part of the reason why multiple teams are working on improved routing solutions which maximize decentralization while also retaining the quickness and affordability of the second layer.

In order to find a possible solution for the issue, Pérez-Marco and his partner have turned to theoretical research in biology on the topics of ant colonies and foraging. Assigning tasks and enabling cooperation, even in the absence of communication, are essential issues which lay at the foundation of the Byzantine Generals problem — which Satoshi Nakamoto solved with Bitcoin. In the case of Lightning, ant routing seeks to build a system which takes inspiration from the way in which ants work together to find food and accomplish great efficiency without formal coordination.

On Bitcoin’s Lindy Effect, Regulation and Hyperbitcoinization

Another important topic discussed in this interview revolves around Bitcoin-related research in academia and the difficulty level of finding proper funding or convincing peers about the significance of the phenomena.

Pérez-Marco talks about the Lindy effect (which theorizes that something that has already existed for a long time is more likely to keep on existing, and, therefore, be regarded as a sturdy invention which has stood the test of time) as a major driving force behind academic acknowledgment of Bitcoin’s value proposition. Also, he more or less jokingly explains that research in mathematics can be done with just a pen and a piece of paper — unlike other sciences, there is very little need for other resources.

Last but not least, Pérez-Marco approaches the topic of regulation and how politicians rarely manage to understand how Bitcoin works before passing bills that could affect how it’s utilized. Unless they agree to treat BTC as a different and unprecedented form of money which deserves careful analysis, they often mislabel it as a commodity or taxable property. This leads to many loopholes and potential abuses on the side of the regulators, which Pérez-Marco thinks are normal for all new technologies but should improve over time.

The interview ends on a positive note, as Pérez-Marco agrees that “hyperbitcoinization is probably” the most likely evolution and reiterates the strength of the Lindy effect.

Coinme, which provides kiosks and ATMs for digital currencies, raised $1.5 million in a Series A-1 financing round that included Ripple’s subsidiary Xpring and Blockchain Finance Fund, the company said. Proceeds from the funding will be used for additional licensing to expand its U.S. and international coverage. Co-founder and CEO Neil Bergquist told CoinDesk that […]

This is a paid press release, which contains forward looking statements, and should be treated as advertising or promotional material. Bitcoin.com is not responsible for or liable for any content, accuracy or quality within the press release.

Thursday, September 12th – The Bitcoin logo (₿) will appear on the shirt sleeve of Premier League football club Watford this season, as part of an educational drive led by the innovative sports betting brand Sportsbet.io.

The logo is part of a wider campaign to improve awareness around Bitcoin and educate the public on the benefits of using cryptocurrencies.

It is led by Watford FC’s primary shirt sponsor, Sportsbet.io, which announced a landmark deal with the Hornets team in June.

Justin Le Brocque, Head of Sportsbook.io Marketing, said: “The crypto community have been hugely supportive of us since we began, so putting the Bitcoin logo on the sleeve felt like a fun way to give something back while also showing them our support.”

The sponsorship will be crowd-funded, allowing anyone who holds Bitcoin the exclusive opportunity to share in the perks granted to Watford FC sponsors. Contributors can bid for public LED space shown live during matches, use of the Bitcoin box for eight people and exclusive Watford FC merchandise.

“Some of the biggest challenges we and others like us face is raising awareness, dispelling common myths around cryptos and educating the public on the advantages and opportunities presented by cryptocurrencies,” added Le Brocque.

“Our partnership with Watford marks a major disruption in the world of traditional sports sponsorship, and by adding the Bitcoin logo we hope this world’s first partnership will create even more buzz around cryptocurrencies.”

Scott Duxbury, Hornets’ Chairman & CEO, added: “Placing the Bitcoin logo on a Premier League shirt is something that challenges the accepted norm. We’re excited about the partnerships and the potential for new global conversations that it could help start for our club.”

To celebrate the Bitcoin sponsorship with all Bitcoin holders, Sportsbet.io is also giving away a 2 mbtc Free Bet to all Sportsbet.io players if Watford scores against Arsenal this coming Sunday. More information on the amazing offer can be found https://sportsbet.io/promotions/free-bet-giveaway.

Last month, Sportsbet.io announced a pioneering three-year partnership with Watford, marking the first time a company known for blockchain and cryptocurrency expertise had appeared on the front of a Premier League shirt.

The announcement was accompanied by the launch of Sportsbet.io’s ‘Know No Borders’ campaign, which highlights the brand’s commitment to putting players at the heart of the action, no matter their country, sport, team or currency.

Sportsbet.io accepts a range of fiat and cryptocurrencies, including Bitcoin, to deliver the very best in fun, fast and fair gaming.

Founded in 2016 as part of the Coingaming Group, Sportsbet.io is a leading multi-currency sportsbook operator that has redefined online sport betting by combining cutting-edge technology with cryptocurrency expertise and a passion for offering its players with the ultimate fun, fast and fair gaming experience.

Sportsbet.io provides an expansive range of betting action across all major sports and eSports, offering players more than 350,000 pre-match events per year, as well as comprehensive in-play content and one of the industry’s most diverse array of both crypto and local currencies.

It is the first sportsbook of its kind to introduce streaming across all major sports and a cash out function with Sportsbet.io recognised as being a rising star within the online sports betting world.

Sportsbet.io prides itself on its secure and trustworthy betting service, with withdrawal times of around 1.5 minutes among the fastest in the industry.

This is a paid press release. Readers should do their own due diligence before taking any actions related to the promoted company or any of its affiliates or services. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in the press release.

With institutional interest in crypto assets growing, crypto-specific projects and traditional finance companies alike have been ramping up their institutional offerings to cater to the needs of this specific client base.

Though a lot of effort has been put into building secure infrastructure and solutions for financial institutions to enter the cryptocurrency field, unclear regulations remain a significant barrier to institutional adoption.

When asked whether or not he sees institutional investors entering the cryptocurrency space, Boris Bohrer-Bilowitzki, the head of sales at digital assets custody and portfolio management firm Copper Technologies, affirmed the trend.

“Yes, without a doubt,” he told Bitcoin Magazine, “from very public entrances like U.S. pensions and university endowments, to European pension funds, family offices from all over the world, and sophisticated fund structures and strategies. There is also an increasing number of U.S. high frequency trading getting into this space.”

Based in the U.K., Copper Technologies claims to hold anywhere between $100 million and $500 million worth of cryptocurrencies on behalf of clients like Nickel Asset Management, a U.K.-licensed institutional digital assets arbitrage fund.

“If you’re technologically minded, there has never been a better time to be in finance,” Bohrer-Bilowitzki said. “All the rules are being re-written as people begin to understand the potential of distributed ledger technology (DLT) for any asset class, traditional or digital.”

For Scott Freeman, co-founder and partner of JST Capital, a digital assets financial services firm serving institutional investors, demand has accelerated over the past few months. He said the trend correlates with the effective entrance of pioneers into cryptocurrency, paving the way for followers to follow suit.

“Whereas in the past many investors did not want to be the first to enter this space, we’ve now seen first movers enter the space, and now others are willing to invest in crypto as a diversified, uncorrelated investment,” Freeman told Bitcoin Magazine. “The market continues to evolve quickly. Clients are more comfortable than they were three months ago and will be more comfortable with investing in digital assets three months from now.”

JST Capital was founded in January 2018 to bring traditional and sophisticated financial tools and solutions to banks, brokers and institutional investors dealing with this rapidly growing asset class. In June 2019, led by a team of former fund managers, investment bankers and traders from the likes of UBS, the Royal Bank of Scotland (RBS) and Bank of America, JST Capital launched a suite of cryptocurrency offerings that includes over-the-counter (OTC) trading, risk management modelling, optimization strategies and consulting services.

Asian Markets: An Increase in Institutional Cryptocurrency Interest

According to Freeman, JST Capital has seen traction in both the U.S. and Asia, two markets the company has operations in. He said the trend has been driven by these markets’ respective dynamic blockchain startup ecosystems and overall higher awareness of the technology.

“The Asian market tends to be more driven by retail investors, though we have seen an increase in institutional interest from Hong Kong in particular,” Freeman said. “We see a lot of blockchain innovation still coming out of Silicon Valley but more recently we’ve seen a lot of projects out of Asia gaining traction.”

On September 10, 2019, the company announced the expansion of its professional digital assets services offering to the Asia-Pacific region “a dynamic, vital region that plays a big role in both the traditional financial sector and the emerging digital assets markets.”

Crypto Finance provides regulated asset management, brokerage and storage solutions in digital assets for top Swiss and European banks and financial institutions, the company claims. Its subsidiary, Crypto Fund, is reportedly the first and only asset manager for crypto assets that’s regulated by the Swiss Financial Market Supervisory Authority (FINMA).

Need for Institutional Cryptocurrency Custodial and Trading Services

Until recently, one of the main barriers to institutional adoption of cryptocurrency has been custody, or the ability of financial institutions to hold and secure cryptocurrencies on behalf of trading clients.

And no doubt, there are good reasons to be concerned, given the heightened cyber risk associated with crypto assets and their extensive history of hacks and fraud. In fact, blockchain security company CipherTrace estimates that a total of $227 million worth of cryptocurrencies was stolen from cryptocurrency exchanges and infrastructure in the first half of 2019 alone.

Copper Technologies was founded in January 2018 to address just that, Bohrer-Bilowitzki said. At the time, services available simply did not meet clients’ security standards.

Copper’s standalone cryptocurrency custody application, Copper Unlimited, has several built-in safeguards and uses techniques such as key sharding to ensure maximum security. Key sharding is a process by which a private key is split into separate pieces, or shards, and then distributed between trusted third parties.

Copper also uses an Optical Air-Gap for its cold storage, which provides an added layer of protection that prevents offline machines from being infected with malware.

Although security is paramount for crypto assets, there’s also a need for fast access, Bohrer-Bilowitzki said. To this end, Copper Platform, a trade and settlement infrastructure company, was launched in June 2019. It links custody with multiple exchanges like Bitfinex, BitMEX and Binance, as well as OTC desks.

“Having your private key locked in a mountain vault is all well and good, but it doesn’t help you execute a variety of trading strategies,” Bohrer-Bilowitzki said. “The safeguarding and trading infrastructure was developed specifically to marry the worlds of ‘hodlers’ and those that need constant, quick and secure access for trading purposes.”

For JST Capital’s Freeman, it’s clear that a lot of progress has been made to develop and deliver secure and sophisticated tools for institutional investors. As the industry matures, even better solutions will emerge.

“The market is more advanced than it was six months ago and we expect to see better and more robust solutions to solve this issue over the next three to six months,” Freeman said. “There is a tremendous amount of energy going into improving custody solutions to match the needs of institutional investors, as well as the accountants and auditors who need to make sure the solutions are compliant with current standards of financial reporting.”

A Booming Institutional Cryptocurrency Industry

JST Capital, Copper and Crypto Finance are part of the growing list of companies targeting institutional players.

In fact, since 2018, the institutional-grade trading of cryptocurrencies and tailored custody services have multiplied in number, with established crypto startups like the exchanges Coinbase, Gemini and itBit, as well as blockchain security company BitGo, all launching services.

Coinbase unveiled its suite of institutional products in May 2018, which it has since expanded through strategic moves like acquiring Xapo’s institutional businesses in August 2019. According to Coinbase, the acquisition allowed it to become the world’s largest crypto custodian, with over $7 billion in assets under custody. It claims to serve more than 120 clients in 14 different countries.

BitGo received the green light from South Dakota regulators in September 2018 to create and operate a cryptocurrency custody service. In May 2019, the company expanded its institutional offering with the launch of a new clearing and settlement system operating off-chain.

But this booming industry is about to get even more crowded, as traditional players have begun entering the space.

In October 2018, American multinational financial services corporation Fidelity Investments launched a digital asset arm to handle crypto custody services in-house and execute trades for investors such as hedge funds and family offices.

Bakkt, a bitcoin futures exchange and digital asset platform founded in 2018 by the Intercontinental Exchange (ICE), acquired Digital Asset Custody Company (DACC) and partnered with Bank of New York Mellon (BNY Mellon) in April 2019 to develop a secure crypto asset custody and storage service.

And on September 11, 2019, Hong Kong-based Legacy Trust announced the launch of its digital asset custody arm, First Digital Trust, a move it says will help it “stay at the forefront of this burgeoning industry.”

Legacy Trust, a traditional pension and family trustee founded in 1992, recently pivoted to serve the cryptocurrency community, launching what it claims is the world’s first voluntary pension plan supporting digital assets on September 4, 2019.

Regulatory Landscape Needs Improvement

Institutionalization is a necessary next step for cryptocurrency to reach mainstream global acceptance, and while startups and traditional financial institutions alike are building out the infrastructure and tools needed for professional traders and institutional clients to participate, a key challenge hampering institutional adoption remains: regulation.

“Institutional Investors are eager for more regulatory clarity, particularly in the U.S.,” JST Capital’s Freeman said. “Crypto has not been around for very long and there are also some investors who simply want to see crypto assets continue to be adopted and traded.”

Copper’s Bohrer-Bilowitzki noted that progress has been made regarding cryptocurrency regulation over the past year. Undeniably, Facebook’s controversial Libra stablecoin project has added a sense of urgency to the task, but there’s still a long way to go.

“I think the technology is there, but what is still lacking is an understanding at a regulatory/industry level about what custody means for digital assets,” Bohrer-Bilowitzki said. “The regulatory landscape still needs to improve. The lack of agreement among national/regional bodies is still discouraging to some. But this too is changing rapidly for the better.”

Bitcoin mining giant Bitmain launched two new Antminer 17 miners to the eager market on September 9, 2019. A day before the announcement, data from statistics and wallet provider Blockchain showed that the Bitcoin hash rate topped 94 EH/s to hit 100 EH/s.

Bitmain’s New Bitcoin Miners

The two new mining models, the Antminer S17e and T17e, are purported to offer the best value in the space. The S17e model delivers a hash rate of 64 TH/s and operates with a power efficiency of 45J/TH, while the more budget-friendly T17e offers a hash rate of 53TH/s and power efficiency of 55J/TH.

The new T17e model offers the same hash rate as the S17 (which has a power efficiency of 45J/TH) already on sale but at a lower price offering (with the T17e listed at $1,665 and the S17 at $2,727). Compared to the previously most efficient S9 models launched in 2017, the current S17 series is about three times more efficient.

The company also introduced a compensation strategy for delivery delays. It explains that “if mining machines are not shipped after a certain period of the specified delivery date, Bitmain will compensate customers by coupons for each day of delay, based on PPS rewards of the mining pool (electricity cost deducted).”

It seems then that the company is confident about its delivery or that it is retaining or attracting customers by coupon compensation once delivery is delayed, considering that the market has been desperate for cryptocurrency mining rigs since the bitcoin rally began in April 2019.

According to Bitmain’s website, the first batch of its two new miners, expected to be delivered in the first 10 days of November 2019, was snapped up immediately once available for sale. Regarding this, some insiders said on social media that some big orders were placed to the tune of hundreds of millions of yuan, mostly from mining farms and resellers who might stock up and resell these mining rigs when the price rises.

Bitcoin Hash Rate Boom?

To cater to the increasing market demand, bitcoin miner manufacturers have been working hard on increasing their output. As previously reported by 8btc, Bitmain has ordered 30,000 7nm wafers from TSMC, which could output 90 million chips for about 625,000 units of 7nm miners (assuming all are Antminer S17 models). It was expected that these miners would be shipped by the end of 2019 or during the first two quarters of 2020, which could increase the Bitcoin network’s total hash rate by 33 EH/s.

Apart from Bitmain, other bitcoin miner makers, like MicroBT and Innosilicon, are also increasing production plans on their latest and most powerful miners. In August 2019, an industry insider revealed to 8btc that MicroBT, the Whatsminer maker, has racked in 700 million yuan from miner sales in a single week, which could buy 35,904 units of its most powerful mining machine, the M20S. Recently, Innosilicon has also reportedly received a multimillion-dollar order for miners from cryptocurrency mining farm Hashbox.